The FTSE 100 ended higher on Friday as the pound weakened following dismal UK data on the services and manufacturing industries.
The latest data from Markit released on Friday showed the UK economy contracted at its steepest pace since early 2009 in July.
Markit’s flash UK composite purchasing managers’ index, which combines both the services and manufacturing sectors, fell to 47.7 in July from 52.4 in June. A reading below 50 indicates contraction.
The flash services PMI slid to 47.4 from 52.3 in June, missing expectations of 49.2 and marking the lowest reading since March 2009.
The manufacturing PMI came in at 49.1 from 52.1 the month before, falling short of economists’ expectations for a reading of 50. This was the lowest level since February 2013.
The collapse in the composite PMI to its lowest level since April 2009 provides the first major evidence that the UK is entering a sharp downturn.
The confidence shock from the (UK’s vote to leave the European Union on 24 June) might wear off over the coming months, but the decline in the new orders index to just 46.2, from 53.0 in June, points to even faster falls in output ahead.
The pound fell 1.16% against the dollar to $1.3080 as the report fuelled hopes the Bank of England will cut interest rates at next month’s meeting.
BoE Governor Mark Carney said at last week’s policy meeting that the Bank was waiting on more evidence on the impact of the Brexit vote before considering further stimulus. The central bank shocked the market by keeping interest rates unchanged at the meeting.
“A dire set of PMI numbers for the UK, which will be taken by those once in the ‘Remain’ camp as evidence of the dire impact of the Brexit vote, caused the pound to shed much of the (admittedly limited) ground gained in the past week,” said Chris Beauchamp, senior market analyst at IG.
“The data, plus the implication that the BoE will look to ease policy, has hit sterling hard.”
The flash Eurozone composite PMI also slipped to 52.9 from 53.1 in June, hitting an 18-month low but better than expectations for a reading of 52.5.
The services PMI came in at 52.7, down from 52.8 in June, also marking an 18-month low but ahead of expectations of 52.5.
The manufacturing PMI nudged down to 51.9 in July from 52.8 the previous month. This marked a two-month low and was a touch below the expected reading of 52.0.
“The eurozone economy showed surprising resilience in the face of the UK’s vote to leave the EU and another terrorist attack in France,” said Chris Williamson, chief economist at Markit.
“The overall rate of economic growth is largely unchanged, suggesting GDP is growing at a sluggish but reasonably steady annual rate of around 1.5%.”
Stateside, Markit’s flash US manufacturing PMI rose to an eight-month high of 52.9 in July from 51.3 in June. This was ahead of expectations for a reading of 51.6, led by a robust expansion of incoming new work and the fastest upturn in production volumes for eight months.